Investor Stories 485: Inside VC Anti-Portfolios: Missing Whatnot, Facebook & MongoDB (Dillon, Cheng, Black)

0:00This episode is brought to you by Ramp, the spend management platform we use here at TFR. They're offering listeners$150 just to take a demo. We've never had an offer quite like this. Claim your$150 before this offer is gone at our partner link, ramp.com slash partners slash TFR. Now on to the episode. Welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran, and this is The Full Ratchet.

0:39Welcome back to TFR. On today's special segment, we ask guests to discuss their anti-portfolio, a startup investment that they passed on. Here's the segment called Why I Pass.

0:56On today's special segment, we have Natalie Dillon of Maveron. Natalie, can you tell us a story about a startup that you passed on, your anti-portfolio? Early in my career, I had an opportunity. I met Grant at whatnot. This was in the thick of the pandemic. I thought he was incredibly sharp. He is incredibly sharp, clearly. I had been looking at the live shopping ecosystem in Asia for years. that actually spent a summer in China when I was in college because I was just like fascinated with Chinese consumers and their buying behaviors and patterns. I was a senior associate. I met him on Zoom and I think I just, I talked myself out of it and didn't think that this was the right one.

1:36And I look back and deeply, deeply regret not trusting my instincts, not pushing harder, not believing in myself. I look back, I'm like, I had the thesis. This guy was a rock star, should have been one that I pushed much harder and not pass on.

1:58On today's special segment, we have Larry Chang of Volition. Larry, can you tell us a story about a startup that you passed on, your anti-portfolio? In my early days as a young investor, I went to Harvard. I was at Battery Ventures at the time, and I went back to visit a school club that I was involved with, and I asked the students, what's going on on campus at school? and they said there's this new website called the Facebook. And I said, oh, what is it? It's like a social network that had been started by Zuckerberg and Eduardo Saverin. And so I spent some time with Mark and Eduardo and I actually brought them back to my firm that I was working at and explained to them what a term sheet was and socialized a term sheet and so forth.

2:38And ultimately, because I was young and so forth, the investment committee couldn't get their head around investing in a sophomore in college when the social network that had like 6 ,000 users at one school, which is reasonable at the time. And then obviously, Mark and Eduardo went off to the West Coast and launched at 200 more schools and then expanded beyond from there. And it became what it is today. It's well known in the Boston area that I was the first to be a C to meet with Mark and Eduardo. And I don't wear that proudly. I wish we had invested. But it's interesting to see a company from it's literally three or four weeks old to what it has become now.

3:10It's, you know, it's amazing.

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3:59Ben, can you tell us a story about a startup that you passed on, your anti-portfolio? This is the most painful pass of my life. and it's one that I still lie in bed, think about all the time. A long time ago, it was in our third fund and I knew no SQL databases were going to be big. So you had MongoDB was new, right? And then you had Databricks and there was a third one who I've not forgotten the name of. And I was like, I went really, I said, I got to pick one of these. I probably should do this at the bottom all, but I said, I got to pick one. And so I got like some of the most smartest people in the room I knew I was like the CIO of, VP of technology at Netflix, like the CIO of Yahoo at the time.

4:45And a guy that was like running 20 ,000 developers for Disney, he was the CIO of one of the Disney divisions. And I was like, MongoDB, Databricks, this third one, which do you like? Sorry, not Databricks, DataStax. I misspoke, which is no more, it's been bought. And all of them, all three of these calls, all three of them, were like, we hate MongoDB because of security problems and our developers love it and they all want to use it, but we're trying to get it out of our stack. It doesn't scale and it was just a vicious takedown on MongoDB. And everyone was like, we love Cassandra, which is database was the open source, you know, it's Cassandra open source database.

5:28It's completely scalable and it's just this great solution and we want Cassandra. All three calls. If I had done the Databricks deal, it would have returned my fund two times over. And I did data stacks, which, lovely people, but sorry, it was not a good investment. I passed, I guess, for the right reasons, but maybe I should have just focused on what developers liked more than what the CIOs were saying. I still think about that to this day. It is such a painful decision to have missed MongoDB. and I got to stop beating myself up over it. You know, a lot of VCs are worried about conflicts. Some are not, but could you have done both?

6:09Looking back on it, I should have done both. Like clearly, as a secondary fund, I absolutely should have. I had a really small fund at the time, an$80 million fund. I felt like I didn't have enough capital and so I just chose one and it was an incredibly dumb decision. I had a call last night with a VC buddy of mine. He's an indexer, really small checks, really passive, but he was all bent out of shape because he's looking at a deal we did. And he's like, ah, I feel like it's better than this one I did three months ago, but they're both the same. And I'm like, man, you can probably do both. Check your docs.

6:42Yeah, and now, like talking about lessons learned, like now very much, you know, like we have, you know, we put both a deal and Rippling in the same fund. You know, they're pretty similar in some ways. You know, I have no problem saying I'm going to buy them all, you know, when it's a space, it's clearly going to be hot. And I think that going forward, it's not going to be something that I worry about.

7:11That will conclude this installment of Investor Stories. If you're enjoying the program and would like to see it continue, take a moment and leave a five-star review in iTunes. Okay, that will wrap things up for today. Until next time, over-prepare, choose carefully, and invest confidently. Thanks for joining me.